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Buying a home is probably the biggest financial step you’ll take. It’s exciting. It’s terrifying. And unless you happen to have a few hundred grand sitting pretty in your bank account, it’s something you’ll need to finance.

For first-time buyers (like myself), shopping for mortgage rates can seem overwhelmingly daunting. Where do you start? Who can you trust? And how can you secure the best interest rate out there?

I’m no financial expert, but having gone through the whole process recently, I can shed some first-hand insight. Here’s what I learned.

Know your credit score (and improve it if you can)

When you apply for a loan, the first thing a lender will do is pull your credit file and check out your credit score from all 3 credit reporting companies.

They’ll use your credit score to help them determine whether you qualify for a loan and what kind of interest rate you get — which is why you want to know this magic number before you shop.

Lenders typically view high credit scores as an indication that you won’t default on your loan or be late with your payments. So, if you have excellent credit (say, anything above 740), they’ll compete for your business and give you the most competitive rates.

If you have less-than-stellar credit, knowing your score beforehand can give you time to work on raising it.

Research your loan options

Conventional, 30-year fixed, 5-year adjustable rate mortgage (ARM), Federal Housing Administration (FHA), Veterans Affairs (VA) — these are just a few of the loan types out there. Which one is right for you depends on, among other things:

How much money you have in the bank

Whether your family can help out with the down payment (some loans limit how much of the down payment money can be gifted — for instance, VA loans that go above $417K don’t allow any gifts)

Your credit profile

How long you plan on living in your home

Generally, FHA loans come with higher interest rates but require a lower down payment and are easier to qualify for if you don’t have perfect credit. Traditional loans are more competitive, but you’ll need anywhere from 10 to 20 percent down. Adjustable rate mortgages will give you the lowest percentage on the market, but could spike significantly after the term ends. And VA loans (the one we got since my husband is a vet) offer the best deal out there, but are only available to eligible vets and come with a number of stipulations.

When you speak with prospective lenders, they can help you choose the right one for your situation.

Get all your paperwork ready

Before you really start to shop, it’s smart to have all of the documentation you’ll need for a pre-approval on hand:

Your W2s for the last 2 years

Your bank statements for the last 2 months

Your last 2 paystubs

Documentation for any other sources of income (disability benefits, alimony, etc.)

Some lenders might ask for additional items, but this is generally a good place to start.

Get full estimates from at least 3 lenders

You can start by inputting your info into a mortgage aggregator site or calling different banks. I went with the former, and within minutes, I was bombarded with phone calls and lenders prospecting for my business. (So get ready if you choose that route.)

While it’s time-consuming, it’s best to talk to at least 3 different lenders and pinpoint the following:

1. The APR, not just the interest rate

To get a clear idea of how much your loan will really cost, don’t just look at the interest rate. Some lenders lure you in with really low rates, but have high closing costs, lender fees, etc.

2. An itemized list of the estimated closing cost

The closing cost is how much you’ll have to shell out once all is said and done. Depending on your loan type and lender, it can include the following fees:

Loan origination — the cost of handling your loan

Appraisal — charged by an inspector to determine the true value of the property you want to buy

Private mortgage insurance (PMI) — if you have less than 20 percent down, your lender will require PMI to protect itself in case you default

Discount points — an upfront amount paid at closing to lower the interest rate (typically, one point equals one percent of the loan amount)

And much more

Some lenders will charge nil for writing the loan, while others will charge thousands of dollars. Seeing these costs on paper can help you decide who offers the best deal.

3. An estimate of your monthly payment

How much you pay per month will vary depending on the amount you’re thinking of borrowing, the type of loan, your APR, property taxes, and insurance.

While lenders won’t be able to give you an exact amount until you close the deal (since rates vary each day), they can generally give you ballpark figures for different loan types and amounts.

In my case, I wanted to see how much home I could buy without being broke every month. I asked my lender to break down my monthly payment based on a range of loan amounts. Knowing that estimate helped me set my budget and saved me from considering homes I couldn’t realistically afford.

Be choosy

Just because you’ve gotten estimates or even pre-approvals from different lenders doesn’t mean you have to stick with one.

Your loan isn’t finalized until you find a home and close your loan. So, if you can get a better deal with another reputable lender, go for it. (With that said, watch out for bait-and-switch tactics. Make sure you get everything in writing.)

Breathe

Shopping for a mortgage can be stressful, and it’s easy to get caught up in the vortex of interest rates and closing costs. Remember to give yourself a break and a nice, big bowl of ice cream once you’ve secured the loan that works best for you.

Good luck! And be sure to keep an eye out for Part 3 of our series, when we offer tips on what to do once your home offer is accepted.

P.S. Once you’ve found your first home, Esurance may be able to help you insure it. Get a free homeowners insurance quote* to see if you can benefit from great coverage and save with our New Home discount, which rewards you for insuring your home soon after buying it.

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about Anne

If variety is the spice of a copywriter’s life, then Anne’s career at Esurance was akin to sassafras. From 2010 to 2014, she added a touch of zest to topics ranging from cleaning with baking soda to becoming a first-time homeowner.